Elixir for Nigeria’s Shipping Companies
Eromosele Abiodun posits that the move by the NNPC to embark on changing its trade terms from Free on Board to Cost Insurance and Freight will ultimately boost indigenous shipping capacity
For several years, shipping has been recognised as one of the catalysts for socio-economic development. This is because shipping has since the ancient times been at the fore front of opening up the world and thus a major driver in the process of globalisation. Specifically, container shipping has been both a cause and effect of globalisation and is believed to be the world’s first truly global industry.
Container shipping could claim to be the industry which, more than any other, makes it possible for truly global economy to work. It connects countries, markets, business and people, allowing them to buy and sell on a scale not previously possible. As a matter of fact, it is impossible to imagine world’s trade and ultimately our lives as consumers, without container shipping. Shipping has led to a phenomenal growth in world merchandise trade, which has consistently grown faster than output.
In 2006, goods loaded at ports worldwide were estimated at 7.42 billion tonnes, up from 5.98 billion tonnes 2000. The value of total world export increased from $6.454 trillion in 2002 to $40.393 trillion in 2005 representing an increase of 64 per cent. However, the reverse seems to be the case in Nigeria. It is on record that no fewer than 90 per cent of shipping companies owned by Nigerians have either completely shut down their operations or are barely struggling to survive.
Some of the indigenous shipping companies include: Equitorial Energy, Oceanic Energy, Morlap Shipping, Peacegate, Pokat Nigeria Limited, Al-Dawood Shipping, Potram Nigeria Limited, Joseph Sammy, Genesis Worldwide Shipping and Multi-trade Group all in Lagos; Niger-Delta Shipping in Warri, Delta State; and Starzs Investment Group in Port-Harcourt, Rivers State.
Of all the companies listed above, only two can be said to be operating viable businesses while others, representing 83 per cent of the companies are either completely dead or are in comatose condition.
Ironically, all the shipping companies based in Lagos are either dead or struggling to survive while the ones in Warri and Port-Harcourt are thriving.
Contribution to GDP
Despite its importance, the contribution of shipping to Nigeria’s GDP has always been a matter of conjecture rather than fact. In the recent publications of the National Bureau of Statistics (NBS) shipping is categorised under “other services” and not as a standalone item. Whilst one may be tempted to frown at this practice by the NBS, it is most obvious that the ships that trade the goods into and out of Nigeria, and the freight the ships earn, do not add to the GDP because their revenues all go to the foreigners who own them. Nigerians, at best, earn commissions on shipping support services like marine insurance and law, cargo survey, freight forwarding, transportation and warehousing, some of which have their individual headings in the NBS’ GDP computation. Given the volume of oil and gas cargo that Nigeria exports daily, coupled with the regular importation of refined petroleum products chief of which are premium motor spirit (petrol) and automated gas oil (diesel); add to this the volume of non-oil import and export that pass through our seaports, the loss of capital contribution to the economy from the ships that move these cargoes is better imagined than calculated. With regards to domestic shipping, ownership of tankers and offshore supply vessels (OSVs) is still tilted in favour of foreigners despite implementations of the Coastal and Inland Shipping (Cabotage) Act 2003 and the Local Content Act of 2010 both of which confer on Nigerian citizens the right to building, ownership, management and crewing of vessels that operate within Nigerian territorial waters. Not a little loss of national income, one could rightly surmise.
It is important to note that shipping remains the largest industry on earth, or rather the industry with the largest multidisciplinary components. Maritime economics, maritime law, maritime geography, marine insurance, fishery and oceanography, naval architecture, boat and ship building, cargo and marine survey, marine meteorology, maritime logistics and supply chain management, shipbroking and ship/port agency, transportation and warehousing, marine engineering, marine electronics, metallurgical engineering, shipping accounting and finance, maritime ICT/software development, purchasing and supply, health safety and environment (HSE), and maritime training and education are some out of the numerous fields that combine to give the industry its robustness and depth.
To harness the latent opportunities that shipping presents therefore, experts believe decisive steps towards the development of human resources in the various fields as well as investment in same by Nigerians are long overdue.
“At a time like this that Nigeria is battling with high level of youth unemployment, professional training and practice in any of the fields in the maritime sector can help alleviate the scourge. Since virtually all these fields are untapped, they provide golden opportunities for Nigerians to earn decent living and contribute to developing the economy. What is unique about professional training and development in the shipping industry is that many of the fields of study do not place emphasis on particular academic qualifications, particularly those fields that are not science or engineering-based.
“For instance one could become a marine insurer without having academic background or qualification(s) in insurance study. Likewise people have reached the peak of their career in seafaring as Chief Engineers or Masters of Vessels without as much as any formal schooling beyond secondary school. Guided professional education and training takes care of the knowledge gap. Professional courses abound in transport logistics and supply chain management that can launch people into the world of shipping irrespective of their academic background,” said maritime expert Victor Ikheloa.
According to him, beyond professional training and education, Nigeria needs shipping investors (foreign and local) to increase her maritime asset base.
He said: “This is a rather touchy issue as most Nigerians believe that investing in shipping requires breaking a bank vault. But this assumption is often taken too far. Mature maritime nations in Europe, North America, Far East and Middle-East Asia have made investments in shipping so fluid, flexible and all-encompassing so much that virtually any one or group of persons can invest in ships and allied assets while communal savings and funds that do not have immediate use find good haven of investment in ships.
“A good case is the National Iranian Tanker Company (NITC) which is among the three biggest tanker companies in the world, funded with pension funds of 5 million Iranian pensioners. As of 2015, NITC had 42 very large crude carriers (VLCCs), each capable of transporting 2 million barrels of oil per voyage. The company transports Iranian crude to export markets and also engages in cross-trading of crude oil cargoes for some 150 oil majors worldwide, including Royal Dutch Shell, Total SA, Saudi Aramco and state-run producers in Kuwait and Abu Dhabi. With capacity for 11 million tons per year average, the NITC generates some $1.5 billion dollars revenue per annum in voyage charter freight and time charter hires for its owners.
“Imagine what fortune Nigeria is missing out on by not having as much as a single tanker of its own to lift her crude. Granted that crude lifting contracts are now being given to some indigenous companies, the tanker vessels that lift the crude cargoes are still all foreign-owned and foreign-flagged, while negotiations for their chartering are done with the shipowners’ brokers who are neither Nigerians nor resident in Nigeria. In essence, even the traditional 5 per cent broker’s commission does not enter our national income portfolio.”
The NNPC Solution
Meanwhile, ship owners and other stakeholders in the maritime sector are on the verge of getting the desired change in trade terms from Free On Board (FOB) to Cost Insurance and Freight (CIF) which would enable them to begin to lift Nigeria crude and ultimately boost indigenous capacity.
This new encouragement was a fall out from the stakeholders’ engagement on changing Nigeria’s crude oil affreightment trade term from FOI to CIF which was organised by Nigerian National Petroleum Corporation (NNPC) in Abuja.
The Minister of State for Petroleum Dr. Ibe Kachikwu, who declared the event open, welcomed the development, noting that the issue on this trade term is an aged long challenge that has lingered too far and charged participants to come out with resounding resolutions that would be of National benefit.
Also speaking at the event, the Group Managing Director of the NNPC, Dr. Maikanti Baru stated that the corporation does not have any reason not to allow Nigerians lift crude that there were conditions which made NNPC opt for the FOB trade.
He, however, noted that the NNPC also sees benefits in the CIF trade term but processes have to be followed which may include transition period before finally opting for the CIF trade term.
Shipowners and major stakeholders, who spoke at the engagement, lauded the initiative.
A former Director General of NIMASA, who is also a ship owner pointed out that there is a lot of benefit in the CIF trade term.
He stated further that that it would eliminate crude theft, create employment and ultimately compliment the diversification drive of the Federal Government.
In the same vein, the President of the Ship Owners Association of Nigeria (SOAN) and Managing Director of Starz Marine Group, Greg Ogbeifun observed that what is needed to make the great CIF initiative to grow the Nigerian shipping industry and the economy is the needed Government support, which is coming at the right time, when the country wants it most to diversify the economy.
All other stakeholders, who spoke at the event including leading members of the Nigerian Shipowners Association ( NISA) and Master Mariners, unanimously agreed that the CIF trade term would be more beneficial to the country than the present FOB on which the crude lifting is currently based upon.